Advantages and Disadvantages of Bitcoin Investment
Bitcoin is a relatively new type of currency that has certainly been making the headlines lately. There’s a lot of questions around Bitcoin investing, so let’s dive into some of the advantages and disadvantges.
- Bitcoin is decentralized, meaning no government authority can control it.
- Bitcoin has a limited supply in existence, which means at some point no more Bitcoin can be mined. This will likely lead to price increases over time.
- Due to the nature of blockchain, all completed transactions are accessible to everyone and can be verified by anyone. This allows for full transparency.
- There are zero fees associated with Bitcoin payments. A typical credit card transaction will charge anywhere from 1.3% to 3.4%.
- Bitcoin can be used as another form of insurance against the US dollar which continues to lose value as more and more are printed (see chart below).
- Bitcoin doesn’t pay you in the way that stocks pay a dividend, or bonds pay interest. In order to generate a return of capital, you have to sell part of the coin.
- Bitcoin can be complicated to understand. Not only is blockchain a relatively new technology, it’s also hard to imagine putting your wealth in something that feels completely abstract.
- Securing a Bitcoin wallet. Admittedly, this has gotten a lot easier with websites such as Coinbase. But, if you want to store it yourself, you have to physically store a device such as a thumb drive.
- A lot of stores still don’t accept Bitcoin as a currency. If you want to spend your Bitcoin to get groceries, you will need to exchange it to an accepted currency such as the US Dollar. (This seems to be gaining traction though as PayPal recently posted they will start accepting Bitcoin).
- There’s a possibility of a new coin becoming the next “Bitcoin” and being seen as the leader.
- Although volatility has gone down recently, you can still see swings of 50% over a year in the price of Bitcoin.
I’m sure there are some features of Bitcoin that I’ve missed, but this is a pretty good list to start.
Should you invest in Bitcoin?
If you came across this article wondering if you should purchase Bitcoin – I can’t answer that for you. There’s a lot of speculation about what the future holds. I personally wouldn’t put any more than I’m comfortable losing into the currency. I would categorize Bitcoin in the same realm as I do gold – I hold them as a hedge against the dollar and insurance against the stock market.
Do you invest in Bitcoin? Leave a comment below!